PLR 200702040: IRS suspends new charitable lead trust endowment investment rulings

Plain-English summary

An organization received notice about charitable lead trusts investing in its endowment. The IRS said its October 3, 2003 ruling, PLR 200352017, remained in effect, but it would stop issuing additional rulings on these investments. It was concerned that noncharitable beneficiaries could receive inappropriate benefits from tax deferrals they could control and design. The IRS was studying whether the investment should still be characterized as a contract and whether the trust should be treated as realizing unrelated trade or business income. The letter announced the study and suspension without revoking the earlier ruling or deciding the study’s outcome.

Ruling snapshot

• Question: Would the earlier endowment investment ruling remain effective, and would the IRS issue more rulings involving charitable lead trusts?
• Outcome: Other: earlier ruling remains effective; additional rulings suspended pending study.
• Key authorities: IRC § 6110; PLR 200352017.

Full text (IRS public release)

200702040

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
Date: October 17, 2006 Contact Person:
Identification Number:
Telephone Number:
Employer Identification Number:
UIL 513.00-00
Legend:
Dear :

This letter is to inform you that while PLR 200352017 issued October 3, 2003, is still in effect, we will not be issuing additional rulings concerning the participation by a charitable lead trust as an investor in M’s endowment.

We are concerned that non-charitable beneficiaries may benefit inappropriately from deferrals that can be controlled and designed for tax benefit. Therefore, we are studying whether it remains appropriate to characterize the transaction as a contract when a charitable lead trust is involved and whether it is appropriate to conclude that the charitable lead trust will realize unrelated trade or business income.

This ruling will be made available for public inspection under section 6110 of the Code after certain deletions of identifying information are made. For details, see enclosed Notice 437, Notice of Intention to Disclose. A copy of this ruling with deletions that we intend to make available for public inspection is attached to Notice 437. If you disagree with our proposed deletions, you should follow the instructions in Notice 437.

This ruling is directed only to the organization that requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited by others as precedent.

This ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts. Because it could help resolve questions concerning your federal income tax status, this ruling should be kept in your permanent records.

Pursuant to a Power of Attorney on file in this office, a copy of this letter is being sent to M’s authorized representatives. A copy of this letter should be kept in M's permanent records.

200702040
2

If you have any questions about this ruling, please contact the person whose name and telephone number are shown in the heading of this letter.

Sincerely,

Robert C. Harper, Jr.
Manager, Exempt Organizations
Technical Group 3

Enclosure
Notice 437